Highlights

• MAA’s reported Jan 2018 started weak with TIV of 44.6k (-0.2% YoY; -18.6% MoM) after the end of aggressive year end promotions during Dec 2017. We expect Feb TIV to be lower MoM due to shorter working month following Chinese New Year holiday. We maintain our 2017 TIV assumption at 588.1k units, driven by new model launches, uptrend of consumer sentiment and normalization impact of bank tighter lending guidelines.

Comment

• Perodua (UMW and MBM) reported sales at 17.7k units (+24.6% YoY; -12.3% MoM), maintaining its leading position with 39.7% market share in Jan 2018. Perodua is targeting 2018 sales at 209k (+2.0% YoY), leveraging on newly launched Myvi in Nov 2017 as well as expected Alza facelift and new SUV in 2018

• Proton (DRB & MBM) reported continuous weak sales in Jan with 4.8k units (-33.6% YoY; -0.4% MoM). We believe the strategic partnership with Geely will benefit Proton in the longer term with efforts to restructure and realize synergy, as well as the introduction of new models from 2H18. The partner will support Proton’s turnaround, with the injection of funds and technology know-how.

• Honda (DRB) maintained its leading position within foreign segment with market share of 18.3% in Jan 2018. However, Honda registered lower sales at 8.1k units (-5.4% YoY; -27.5% MoM). Honda is targeting 109k sales, banking on few launches including facelifted HRV, facelifted Odyssey and new Accord in 2018.

• Toyota (UMW) recorded disappointing sales at 3.6k units (-38.7% YoY; -50.8% MoM) in Jan. Toyota is targeting sales above 70k units in 2018, supported by the upcoming facelift Vios, new C-HR and new Harrier as well as the rumored new Camry.

• Nissan (TCM) registered sales at 2.0k units (+29.1 YoY; -11.3% MoM). Given no new exciting model introduction, Nissan market share has eroded to 4.5%. Nissan is expected to launch Nissan Kick, new Serena and hybrid car Leaf EV in 2018.

• Other marques reported combined sales of 8.4k units (+15.0% YoY; -7.0% MoM). The segment was led by Mazda (BAuto), Merc (DRB & C&C) and Mitsubishi (MBM).

Risks

• Prolonged tightening of banks’ HP rules.

• Slowdown in the Malaysian economy.

• Global automotive supply chain disruption.

• Sudden jump in fuel prices and interest rate.

Rating

NEUTRAL ( ↔ )

• The sector is expected to be supported by rebounding TIV growth in 2018, with improvement in consumer sentiment and normalizing impact from tighten bank guideline. While stronger RM will improve the industry margins, the higher basic material costs may offset (partially offset) the benefits of RM appreciation.

Valuation

• We maintain NEUTRAL on the sector. Our top picks are PECCA (BUY; TP: RM1.95) and DRB (BUY; TP: RM2.60).

Source: Hong Leong Investment Bank Research - 26 Feb 2018